Benefits & drawbacks of going D2C
One of the principal advantages of a D2C approach is the customer-centricity of the model. This provides a better relationship between business and end consumer and results in stronger brand loyalty. Online direct-to-consumer businesses enjoy lower costs than their physical counterparts, as they have reduced the number of different business components such as employees, renting or building a brick-and-mortar store, supporting relationships with third party vendors and partners, minimizing administrative resources, and recording of business transactions between partners. Moreover, online D2C businesses are no longer locally confined but can reach wider international audiences and take advantage of an almost limitless marketplace. D2C enables smaller companies to grow faster and compete with larger businesses because of their agility, availability of products, faster shipments, quality of service.
However, by selling directly to the consumer, businesses face risks that have been previously tackled by wholesalers or retailers, such as labeling, shipping, returns, or cybersecurity. Handling customer data is a particularly sensitive issue as it entails using, storing, and disposing of data following the laws of a specific jurisdiction. Also, in switching from a particular model, where instead of a few distributors, businesses choose to deliver their products to many individual customers, companies increase the complexity of their distribution chain, which in itself bears pertinent risks.
Going D2C requires not only sophisticated infrastructure but market expertise, frameworks for shipping orders and owning of consumer data. Investing in the lacking competencies may draw resources away from a company’s core products, which in turn can result in customer erosion or damage a relationship with existing partners.
The harbingers of success in D2C are often an exclusive offering or a differentiated value proposition, product bundling, auto-reorders, and additional services.
Let’s summarise the benefits and drawbacks of a D2C business model in the following table: